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Global Market Sell-Off; Argentine Peso Plunges; Bears on Wall Street; Ukraine Crisis; Green Trade Initiative; Future of Europe; Israel's Economy

Aired January 24, 2014 - 16:00   ET



RICHARD QUEST, HOST: The falling fell fast. The market is off more than 300 points. Thank goodness it is the end of the week. It is Friday, it's January the 24th.

One of the reasons, the panic over the peso. Argentina's currency crisis is spreading.

Tonight on the program, the head of the IMF rejects an idea that a deal would've hurt Ukraine's economy.

Also, the prime minister of Israel, Benjamin Netanyahu, tells me how Moses is helping Israel's energy boom. I jest not.

I'm Richard Quest. It's Friday, and I still mean business.

So, the closing bell has just rung on Wall Street. The Dow is off seemingly more than 300 points. We will give you the exact numbers in just a moment as the final numbers filter through, and we'll get analysis from Alison Kosik at the New York Stock Exchange on why.

But it would appear that one of the reasons is a bubbling crisis in Latin America, South America. Tonight, the IMF managing director Christine Lagarde says she is ready to act as currency chaos in emerging markets sparks a global sell-off. You'll hear from the MD in just a moment.

Here's what happened on Wall Street. It's the biggest loss of the year. All right, we're not out of January yet, but it is 316 points for the Dow Jones Industrials, off so -- by -- at the close. A loss of 1.9 percent.

And look at that graph. Looks like you were skiing downhill, because it basically starts at the top and just went down all the way to the close. Under 16,000, 15,880. Emerging market currencies fell sharply against the dollar on Friday. The Turkish lira fell to a record low for the tenth day in a row. Russia's ruble hit multi-year lows.

The Argentinian peso is down around 20 percent in the last three days. There was chaotic handling of the peso, and the government in Buenos Aires devalued the currency on Thursday, all in an attempt to jump-start growth. The peso had the hardest drop in some 12 years, and Friday, the government unexpectedly lifted currency controls.

So, what is going on? And are the wheels seemingly coming off the wagon? The economist Nouriel Roubini seems to believe that things are pretty serious. John Defterios is with me to put this into some perspective for us tonight. John, what happened and why?

JOHN DEFTERIOS, CNN EMERGING MARKETS EDITOR: It's almost a textbook case of mismanagement of the economy.

QUEST: In Argentina's case?

DEFTERIOS: In Argentina's case. They had currency controls put in place after the elections. She'd spent a lot of money, Cristina Fernandez de Kirchner, in 2011. Growth popped up to 9 percent, the controls came in, growth collapsed to 1.8 percent last year and this year, in 2013. And they lifted the controls, because the reserves dropped down to less than $30 billion.

It's not an entire surprise in this mismanagement. Earlier, as you know, I chaired an emerging market panel and we talked to Nouriel Roubini, and this is what he had to say about that mismanagement.


NOURIEL ROUBINI, ECONOMIST: First of all, Argentina has the wrong macro policies. They're bleeding reserves. They finally let the currency move downward. That happened the same day when the China numbers about manufacturing activity came weaker.

And we've had now elements of political unrest to different degrees from places like Ukraine to Thailand or even in Turkey. Sounds like a perfect mini storm, but in the broader picture, is one in which China is slowing down, the Fed is tapering, the commodity super cycle is over.

Many of these emerging markets did not do structural reforms in the last decade. In a number of these emerging markets had slippages of monetary and fiscal and credit policy when money was cheap at zero, policy was data was going into emerging markets. And now, the market pressures are emerging.


DEFTERIOS: So, a perfect mini storm we've had. Protests in a lot of these emerging markets as the growth slowed down here. At the same time, Richard, the thing to watch out for in 2014, six major emerging markets have elections. So the uncertainty level has climbed up.

But most people I speak to, including the president of Colombia, suggested look, we've learned a lot from past crises. Management is better. Argentina is a very unique example, along with Venezuela.

QUEST: The question, of course, is if Argentina faces a full-scale currency crisis, a balance of payments crisis, will the IMF be called in to help out? This is what Christine Lagarde, the MD of the Fund, told me today.


CHRISTINE LAGARDE, MANAGING DIRECTOR, INTERNATIONAL MONETARY FUND: We welcome that call. We haven't had a review of the Argentinian economy since 2006. We are not really sure about the actual status of the economy, and we like to go under the skin of any economy that is a member of the IMF. So, that call is more than welcome.

QUEST: And you're ready to help if necessary?

LAGARDE: We're ready to do the job that we do for all members in the membership.


QUEST: So, Christine Lagarde is ready to do the job if the Fund asks for -- or if Argentina asks the Fund. Other emerging markets -- Russia, Turkey, what are they saying about this? Are they worried?

DEFTERIOS: Indeed they are. We saw the Turkish lira hit another all- time low. This the tenth trading session in a row where we've seen the suffering. Morgan Stanley identified the most vulnerable this year and last year, the Fragile Five: Brazil, Indonesia, India, South Africa, and Turkey.

I has the deputy prime minister of Turkey in charge of economic policy on the same panel today. This is what he had to say about the rout in his currency.


ALI BABACAN, DEPUTY PRIME MINISTER OF TURKEY: Well, what's happening in Turkey mostly is a repricing process. Not only just because of the Fed's tapering, but also the recent political events has triggered some market volatility.


QUEST: That's the Turkish deputy prime minister. John Defterios, thank you very much.

DEFTERIOS: Nice to be here.

QUEST: Looks like you've got your work cut out for you as our emerging markets man.

DEFTERIOS: Yes, it'll be a busy couple of weeks.

QUEST: Thank you much.


QUEST: John Defterios joining us here. Now to the market. Alison Kosik joins us from the New York Stock Exchange. The core question, Alison: was today's 300-point fall predicated by these events of emerging markets, or was it something else at play here? Tell us.

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Yes, it was. I'm going to steal a phrase from you. Yes, it was all about the currency conundrum, Richard, the bears taking over as soon as the opening bell rang. It is all about those currency -- the currencies in emerging markets selling off today.

You know, you think about it, these emerging markets have come to rely on the Federal Reserve. So have investors here. Some are even speculating at this point that perhaps investors may be throwing a temper tantrum at this point and selling off now just days before the final Fed meeting next week with Ben Bernanke.

And then when Janet Yellin steps in, some people are saying, wait a minute. She may put up the stop sign and actually plug the stimulus from leaving and go ahead and leave it the way it is and not taper any more. That is just speculation, Richard.

QUEST: Alison Kosik in New York, with the Dow off 318 points, a fall of the best part of 2 percent. Alison, thank you. So, just when we thought it was all quiet in the markets. We'll have more on that later.

Now, in Ukraine, tonight, an uneasy stalemate on the streets and in the meeting rooms. A senior EU official has been to see the Ukrainian president to try and end the country's political impasse.

The scene tonight in Kiev, where protesters have spent the day strengthening their barricades, the word that we are hearing is that the protesters are building up again. Fires are being started -- well, never mind. You can see them for yourself.

But there's not the same violence that we've seen in previous days. But those fires, as you can see, are clearly fuel-fed, judging by the -- or at least rubber tires, judging by the thick, black smoke that's being given away.

Now, on Thursday, a second round of talks between President Viktor Yanukovych and the opposition leaders came to nothing. Yanukovych has pledged to reshuffle the government. Yesterday on this program, Ukraine's prime minister, Mykola Azarov, told me agreeing to the IMF's conditions for a loan instead of Russia would have sent his country into financial crisis.

So today, I asked Christine Lagarde at the Fund, well, was the Fund putting forward polices that would have driven the Ukraine into crisis like Greece?


LAGARDE: Ukraine is a member of the IMF. We have a dialogue. We want to continue to help, and we will do so. But what the Ukraine policymakers have to do is to stabilize the economy. And to do that, they have to accept that both on the currency level as well as on the subsidies front, reforms have to be started.

We don't ask that those reforms be done overnight. It's difficult, but it has to be started. We are engaging international taxpayers' money, in a way, and we can't do it without consideration and without efforts being made. But it's not a question of bringing the Ukraine economy down. It's a question of bringing it up.

QUEST: But you wanted the conditionality. He says the IMF wanted to impose.

LAGARDE: Richard, it's not conditionalities, it's a partnership. And it's a partnership that works three ways: the IMF, policymakers, and the people in the country. And there has to be political endorsement so that the reforms are conducted in order to stabilize and improve the economy.

They are hard political decisions to make. When you say that you're going to, over time, gradually reduce the subsidies and target them to the people who really need them, you take a political stand that is difficult. But it's needed for the economy to be stable and for taxpayers' money to be spent wisely in the country.


QUEST: Christine Lagarde on the issue of Ukraine. Now also, before the Ukrainians signed the deal with the Russians, there was the prospect of the deal with the Europeans. But the EU wouldn't provide the money.

So, I spoke to the European Commission president, Manuel Barroso, Jose Manuel Barroso, about the crisis, and he told me has spoke directly to President Yanukovych and urged him to continue talks with the opposition.


JOSE MANUEL BARROSO, PRESIDENT, EUROPEAN COMMISSION: Just now, I spoke with President Yanukovych of Ukraine by phone, and I expressed to him my very serious concerns. I've warned him that if the situation does not change, there will be, certainly, consequences in the relationship between Ukraine and the European Union.

I've asked him to receive Commissioner Fuller and High Representative Ashton, because I think it's important that we keep the dialogue with him, and I've urged him to have real dialogue with the political opposition without preconditions. So, I hope that the situation will de-escalate, because what's happening in Ukraine is simply unacceptable.

QUEST: What consequences could there be for him?

BARROSO: I don't think we should now speculate about those consequences. It's obvious that we are now bound to work by European values. If the country deviates from European values, we cannot keep the same kind of relationship.

But now, let's focus on dialogue. Let's not go to the next phase, because we'd like to avoid the next phase. Let's hope that the message of wisdom is well-heard in Kiev.

QUEST: He doesn't need the Union.


QUEST: He's got the money, now, from Moscow.

BARROSO: No, we are the biggest partner of Ukraine. By the way, we are the biggest partner, also, in trade terms, of Russia. So -- and most of the Ukrainian people, certainly what they want is to become closer to Europe.

And when you have seen all those young men and women by freezing temperatures waving the European flag, that tells you a lot about where this country wants to be.

But if fact -- and I think that President Yanukovych himself would like to be closer to Europe, but because of pressures he received, he could not sign the agreement that he has initialed. Because in fact, they have initialed the agreement. But at the last moment, when they were going to sign, they were told by someone that it was better for them not to sign.

QUEST: But it is time for the EU, as you're just said, to warn.

BARROSO: To warn. To warn in a constructive way, because we don't want conflicts. What we want is the country to respect the basic values and basic freedoms.


QUEST: President Barroso of the European Commission talking to me earlier today.

Now, still to come, next on QUEST MEANS BUSINESS, call it a landmark proposal for global environmental trade. Well, they couldn't get one deal, so what you think they're going to get another? The US trade representative will be with us after the break to put the case.


QUEST: You might think of it as the trade two-step dance. You know the way, one step forward, two steps back. But when it comes to global free trade, some of the world's biggest economies are making a big push to cut tariffs on green goods, like solar panels and wind turbines.

While talks on the gigantic trade deal between the EU and the US, they may have at least take a breather or even stalled as Brussels conducts a three-month consultation. US trade representative, the USTR, Michael Froman, joins me now. Ambassador, thank you, sir.


QUEST: Let's do the environmental bit first. Environmental trade deal, or a trade agreement, what's the nub of it?

FROMAN: Well, today, 14 economies came together and decided to work together to begin to prepare for negotiations on eliminating tariffs on environmental goods. It's a $1 trillion market right now, and these countries represent 86 percent of that market. And there are tariffs as high as 35 percent on some of these products.

QUEST: And the sort of goods we're talking about?

FROMAN: As you said, it's wind turbines, it's solar panels, it's water equipment, it's all sorts of equipment that can help the environment and support our efforts to combat climate change.

QUEST: The skeptic in me says immediately, you couldn't get the Doha, you finally got Bali. Why should you have any more rapid success with environmental issues? Because somebody somewhere is going to put a spoke in the wheels.

FROMAN: Well, two years ago, the WTO came together and said we need fresh, credible approaches to trade liberalization. And that led to the Bali agreement in December around trade facilitation. It also led to the start of a negotiation on services and on information technology.

And those negotiations are proceeding quite well. Today's announcement will add another negotiation, potentially, to the WTO --


QUEST: Why should I be optimistic about it?

FROMAN: I think these countries representing 86 percent of global trade in this area, coming together to commit to eliminate tariffs on a list of environmental goods, and to work with other parties at the WTO to expand the group.

QUEST: Let's talk on the trans-Atlantic trade partnership. The EU is now taking its consultations. How -- give me your gut feeling for how things are going.

FROMAN: I think things are going pretty well. We've had three rounds of negotiations. We're working through issues. We know where we have agreements, we know where we have disagreements.

And I think the fact that they're pausing on one issue to have further public consultations is perfectly appropriate. We have public consultations and consultations with our Congress on an ongoing basis.

QUEST: What do you feel is going to be the big sticking point, ultimately, in all of this? Because the -- no one doubts for a moment that both parties want it and can see the huge benefits of it. But where will it all come a cropper, as we used to say?

FROMAN: The biggest opportunity in this negotiation, but also the biggest challenge, is whether we can bring our regulatory and standards regimes together in such a way as to reduce unnecessary barriers without sacrificing or diminishing the level of health, safety, and environmental protection for our people.

QUEST: I've asked everybody on this subject. When would you like to see an agreement? When do you think we can expect to see an agreement?

FROMAN: We're going to --



FROMAN: -- work it as hard as we can and take whatever time it takes to get it right. But I think -- I said when we first launched this agreement, we want to do it on one tank of gas, and that remains the case today.

QUEST: I won't ask where we are on the tank. Ambassador, good to see you. Thank you for coming in.


FROMAN: Thanks for having me.

QUEST: Many thanks, indeed. US trade representative joining me.

Now, as we continue our go around the world and the world of economics, the president of the eurogroup has been telling me, Europe need to become more competitive. Minister Dijsselbloem says Europe cannot take the easy road and rely on easy monetary policy from the European Central Bank. I asked him to lay out his plans for a crucial year ahead for the eurogroup.


JEROEN DIJSSELBLOEM, PRESIDENT OF THE EUROGROUP: Well, I'd say, first of all, roll out the strategy that we've been pursuing, which is about dealing with budgets and debt, which has been a major issue in the eurozone, but is now more or less getting under control. Debt for the first time last quarter dropping, on average, in Europe.

The second part of that strategy is structural reforms. Europe is not competitive enough, and that certainly also goes for the eurozone. That means making labor market more open and flexible, adjusting our pension systems, retirement age, dealing with the cost of health care, which is rising throughout Europe. These are the main issues we have to pursue.

And a third one is very important, that's the banking union. Over this year, the banking union will start. The new rules and regulations will be put in place. Banks will be taken through the asset quality review, and that has to provide new opportunities for growth.

QUEST: Christine Lagarde this morning was saying that nobody must be complacent, which I'm sure you would agree with. And that there needs to be -- we mustn't take our foot off the accelerator yet. But the ECB is doing what it can, and it will do some more, most people believe. What can governments do?

DIJSSELBLOEM: I absolutely agree that I think we've put to much emphasis and expected too much from the monetary side. They're very helpful. The ECB's done very good work. But it has to come from some further reforms throughout the European Union, throughout the eurozone.

So basically, all of our governments have to push forward these modernizations of our economy. We have to become more competitive, we have to build up our export potential, which is there. We have to build up the competencies of our labor force, et cetera. If we don't do that, then we will get stuck at a too-low level of growth. But the potential is much higher, I'm sure.

QUEST: It's easy for the ECB to cut rates. It's easy for the ECB to do an LTRO. It's easy for the ECB to add monetary accommodation. It's very difficult for a national government to make structural reform.

DIJSSELBLOEM: Yes. But if you want to deal with the structural issues in your economy, you shouldn't always take the easy road. The easy road is sometimes monetary policy or quantitative easing, et cetera. That is an easy short-term stimulus for the economy.

But it sometimes doesn't deal with your structural issues. If your costs of labor is too high, if your employment force is not well-educated not well-trained, et cetera. If your labor market is not flexible, then you will not be competitive.

So, let's be careful to jump to the easy way out, the easy solutions, which for the short-term may be necessary. Let's deal with the structural issues. And I think that's what we're doing in Europe. And that is costly, politically costly, and still it has to be done.


QUEST: The minister making the point clearly that we'll all have to work longer hours, longer weeks, and longer years.

Still to come on QUEST MEANS BUSINESS, Israel's prime minister, Benjamin Netanyahu, tells me why tech companies are the future in the Israeli economy. And it's all to do with cyber security. Good evening.


QUEST: When the story of Edward Snowden, the NSA, the bugging, the mass data collection, when all these stories along with that of hacking and cyber security call came to fruition, there was one country in the world that stood to benefit more than most, at least from the industrial point of view.

Israel, with its growing and vastly important cyber security industry, is now a crucial element of the country's economy. I sat down with the Israeli prime minister, Benjamin Netanyahu, who made it quite clear, when it comes to cyber security, Israel is where it's at.


BENJAMIN NETANYAHU, PRIME MINISTER OF ISRAEL: First you have to run the economy and macro economics. You can't not run the ship right, and we run a tight ship. We control spending, we try to control tax rates. Actually bring them down if we can.

The second thing is innovation, innovation, innovation, and that's what we have. Israel is the innovation nation. It's got this explosion of high technology, and now we're concentrating on one field: cyber protection.

QUEST: Is this because of cyber security, the NSA, everyone's paranoid, is everybody beating a path to your doorstep? Who is beating a path to your doorstep?

NETANYAHU: Who's not?

QUEST: Well, tell me some names.

NETANYAHU: There's not a single leader of any country that I made --


QUEST: Companies.

NETANYAHU: And the big companies. Google. ENC. Yahoo! We're talking to them. Many cyber companies who are there. But everybody, Cisco or Digitizing Israel. It's a fantastic story.

QUEST: What do they want from you?

NETANYAHU: They want our expertise in cyber protection. They want all the possibilities of the internet economy. The internet of everything. We tend to do not everything, but just about everything.

But they also increasingly want cyber security because the people who are watching this probably have bank accounts that are, in all probability, a third of them at least might be protected by software that comes from Tel Aviv or even protected from Tel Aviv itself. You want the protection of privacy, of our electrical grids, of our bank accounts --


QUEST: Can you build an economy on it? Can you build an economy on this? Because you've also got oil and gas off the coast. You've got -- that will have huge revenues, which in many ways will dwarf cyber security.

NETANYAHU: Oh, I think cyber security is -- look. I think the global economy is driven by the internet. The internet is a roaring tiger. It can't leap up without having cyber security because otherwise, we're in a jungle, and we need that. So, I think that's very important.

But you're right. We found oil and gas. It turns out that Moses was a great states -- a great leader, greatest leader we had. He wasn't such a bad navigator after all, and he brought us -- we thought he brought us to the only place in the Middle East without energy. Wrong again. Moses was right.

So now we've discovered oil and gas in the sea, which is like manna from heaven, but this is, happily it happened to us after 60 years in which we had to live by our wits. So, I don't think there's a danger of the Dutch disease in Israel.


QUEST: Now, you've got to admit, that takes some sort of chutzpah, perhaps, is the word that's best used on this occasion. The Israeli prime minister with the energy boom in Israel related to Moses.

When we come back, we turn to the very serious issue of the crisis in Syria. You're going to hear on this program from the UN secretary-general, Ban Ki-moon. This is QUEST MEANS BUSINESS, live in Davos.


QUEST: Hello, I'm Richard Quest. There is more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.

Egyptian authorities are investigating four bombings across Cairo today. Surveillance video captured the moment one blast hit police headquarters. At least six people were killed in the attacks. Another six were killed in clashes across Egypt between security forces and Muslim Brotherhood supporters.

Both sides in the Syrian peace talks have agreed to meet in the same room tomorrow. Negotiations have been taking place in Switzerland. A spokesman for the Syrian National Coalition says the organization won't talk to the government directly, but will only address the UN special envoy, Lakhdar Brahimi.

Demonstrators in Ukraine have burned barricades in the streets of Kiev. These are live pictures tonight from the Ukrainian capital. Tensions remain high over a new law aimed at limiting protest. Live pictures that you can see, the violence is less, but the fires are raging and the protesters are still there. President Viktor Yanukovych met with senior European officials over the recent unrest.

The IMF managing director, Christine Lagarde, told me the IMF is prepared to help stabilize Argentina's currency. This week, the government devalued the peso and unexpectedly lifted some regulations. Christine Lagarde told me at Davos the Fund was ready to step in if needed.


LAGARDE: We welcome that call. We haven't had a review of the Argentinian economy since 2006. We are not really sure about the actual status of the economy, and we like to go under the skin of any economy that is a member of the IMF. So that call is more than welcome.

QUEST: And you're ready to help if necessary?

LAGARDE: We're ready to do the job that we do for all members in the membership.


QUEST: Face-to-face talks between delegations from Syria's warring sides are set to resume in Geneva. It's a day later than first planned.. U.S. special envoy needed more time to sit down with both parties to prevent the talks from collapsing all together. Here in Davos, the U.S. Secretary of State John Kerry again made it clear to President Bashar al- Assad cannot be part of a new Syrian leadership in the view of the United States. Earlier I sat down with U.N. secretary general Ban Ki-moon and asked the secretary general about the progress of these talks.


BAN KI-MOON, U.N. SECRETARY GENERAL: Nobody said it would be an easy process, it is an extremely difficult one . But we have started the barrier moving and important for us in (terms of ) conference on Syrian peace process. For the first time after three years of bloodshed, two side were sitting in the same room. Now, our goal is to have bilateral face-to- face in negotiation between the two parties. Dr. Brahimi has been doing sort of proximity talks yesterday and today, now we hope that these bilateral talks will continue -- begin -- as soon as possible. The core -- main -- purpose is to establish a transitional governing body with full interjective (ph) powers between the truce. This is a Syrian-led, the Syrian-owned process under the mediation of the United Nations.

QUEST: The Syrians are basically saying there can be no transitional government authority. President Assad is going nowhere according to them.

BAN: I have urged two parties when I had the bilateral meetings separately, that look beyond these current grievances and differences of positions. Look for the future. Let the future over the Syrian people. This is after all your country, your people, just discuss about the how and what will be the best way. Listen -- establishing transitional governing body is the only practical means. That is why I hope they will be realistic and flexible. That's what Dr. Brahimi will try to facilitate.

QUEST: Climate change -- the problem with climate change is everyone keeps talking about it. We get this report that now of course from the Intergovernmental Commission that say it's definitely as a result of climate changes -- of man's behavior. What now do you want, Secretary General, be clear -- what now do you want everyone to do?

BAN: We have many evidences that climate changes put us at risk. -- our communities and even our national security and our businesses. Therefore, it is critically important that we should not waste any time in tackling climate changes. That is why I'm going to convene climate changes summit meeting. I -

QUEST: Just another meeting? How many meetings would you like to have -- how long climate change? We've been having governmentals, we've been having big summits for decades.

BAN: We have only two years left before we agree on climate change legal, global, climate change argument in 2015. This summit will be a solutions-based summit, this will be an action-based summit. I asked leaders to come with a bold target, an ambitious target.


QUEST: The U.N. secretary general talking to me earlier. Now, a case of Francois meets Francis. That's the French president and the Pope. Mr. Hollande's personal affairs continue to dog him overseas. When we asked the French finance minister how and if it's impacting his job. You'll hear that after the break. "Quest Means Business."


QUEST: The British finance minister George Osborne says he's the victim of his own success. The chancellor was responding to the Bank of England's decision to move away from forward guidance on interest rates than employment. Governor Carne) says the plan must be bold because the key indicator has now fallen much faster than the bank predicted. George Osborne told me he isn't worked -- quite the opposite.

(BEGIN VIDEOCLIP) * GEORGE OSBORNE, BRITISH CHANCELLOR: This is a challenge view -- I called success and it points to a wider picture you see in the U.K. of a recovering economy with job creation, with unemployment falling, with the deficit coming down, and that monetary and fiscal framework, working together to achieve that.

QUEST: Now you're basically saying to business 'You've got to do your part too,' aren't you? What do you want them to do?

OSBORNE: Well, I was making a broader point, which is you know for the first time in really my adult lifetime, there is a debate in the West about the merits of the free market, the merits of business that are successor -- you know, the left is making an argument that these -- competitive and successful businesses are not what we need. I perhaps -

QUEST: A powerful argument with inequality at these levels.

OSBORNE: -- well it's powerfully wrong in my view, and we've got to challenge that. We've got to say that the way that you can create good, decent careers for people in the West -- great jobs, make sure our children's future is better than our own -- is by being the attractive place to innovate, to create jobs.

QUEST: When you have inequality rising as we've heard -- you know the (Ox Firm) report of earlier this week. In that scenario, telling people we need more free market, we need more business engagement is a difficult position.

OSBORNE: Well, I would say the challenge of inequality was brought about by the failure of business, by the failure of business, by the failure of markets, by governments getting too large and deficits getting to high and all of that. So, what we need and the way you create jobs for people is not by waving some magic wand, it's by creating the conditions in which people invest and people want to start businesses and people have aspirations and those aspirations are achievable.

QUEST: How do you now prevent policy in government in the U.K. from becoming somewhat blinkered, both by a possibility that an election -- within 12 months or just over 12 months, a referendum and a negotiation on Europe within or just beyond 12 months -- big ticket issues that could derail or at least confuse the arguments.

OSBORNE: You're right to ask, you know, what is Britain seeking to achieve? My answer to that is reform for the whole of Europe so that our entire continent is not priced out of the world economy. You know, we want to see the single market completed in areas like services, we want to make sure that trade deal with the United States is concluded and we want to make sure this is a point -- not just for Britain, but other non-Euro members of the European Union that our rights are protected, our interests are protected. In the European Union where 18 members have a currency and are doing more integration to support that currency.


QUEST: Across the Channel, similar policies snow seem to be in force in France. The French finance minister Pierre Moscovici thinks job growth must come now from the private sector. And the private sector has responsibility to serve its country. Is this an about-turn for the president from a previous policy? I asked Minister Moscovici about what it means.


PIERRE MOSCOVICI, FRENCH FINANCE MINISTER: We need a pro-business attitude. We need to sign a responsibility pact with the business and also involving the credit unions. And now we are building that kind of a huge economic and social compromise to have a more competitive, a more performing France.

QUEST: The perception was of the -- of a U-turn. The perception was that you were moving to the right and you were bringing business in under an administration which had come in on the left was now suddenly had the scales fallen from the eyes, and business was now the best way forward.

MOSCOVICI: No, we're not newborn --


MOSCOVICI: We are a government in charge since 20 (inaudible) with a reformist approach, and now we want to go further because we cannot be satisfied with a France which is on the average level. France is the fifth economy in the world, France is the second Eurozone. France wants to be the lead in Europe and in the world and to do that, we need more growth.

QUEST: Listening to Minister/Chancellor of Exchequer, George Osborne, who you know well, he's telling British business to step us -- 'British business, it's time to play your role, British business, get involved.' Are you basically now saying that similar sort of message to the French business?

MOSCOVICI: Yes, I could say that. I could tell the business you want to have cuts in the -- because we will do that. You want to have a better taxation, we will do that. You want to have a better regulation, we will do that. But that's the difference with George who is conservative. I'm a social democrat. I tell him, if we do that, you've got to move, you've got to hire, you've got to create jobs, and we need to build the compromise.

QUEST: Very different two points of view there, isn't there? I mean you --

MOSCOVICI: Yes, but with common points. It's the private sector who creates job, and I do agree with that, but I think that private sector also have duties towards the country.

QUEST: Whichever way you look at it, the tax proposal, the very high tax -- the super tax -- the ultra tax. Whatever we want to call it. Whatever limited amount of money it raised, and it raised p peanuts basically, was it worth the reputational risk and damage that it did abroad?

MOSCOVICI: It bought the treasury and I'm also the minister of treasury. The income is weak, something like 200 million Euros. It's no more a personal tax -- I want to insist on that. It's now a tax on the companies. And you know who pay it? Football clubs and the richest football clubs.

QUEST: Was it worth all the bad publicity?

MOSCOVICI: It was, I think, a necessary signal for the French that -- and I'm a social democrat as I said -- we want to fight injustice.

QUEST: The personal affairs of the president -- we're not here to discuss the relevance of them per se, but the actual -- is it having any credibility effect that you can see as you're running the economy and what people are telling you?

MOSCOVICI: Well, first of all, personal matters has to be resolved on personal basis, and that's what President Hollande said. It has to be solved privately and it will be. Second, it has of course no effect at all on the credibility of the president and the government., neither inside the country, neither outside. And people judge a country like France on the effectiveness of its policy, on the results of its policy and the decisions taken and -- well, that's what it is about here in Davos.


QUEST: That's the French finance minister, and this is Maurice Levy, the chief exec of Publicis who joins me now. Good to see you, Maurice, thank you for joining us.

MAURICE LEVY, CEO, PUBLICIS: Always a privilege to be with you

QUEST: So much to cover, we'll go at it (inaudible) -- you heard the finance minister, you heard -- I told you what he said about the president's personal life and whether it has any effect on the credibility of France, on the ability to run the country?

LEVY: In France there is a clear separation between private and public life, so I'm not saying that it's good or bad, it is simple -- simply -- that the people in France stop their investigation at the bedroom, so they are not looking behind the door, what's happening and they make a clear separation. So, I don't believe that like in any Anglo-Saxon country, this would affect the credibility or possibility of (inaudible) of the President.

QUEST: Right. We'll talk -- we'll move -- we'll skate to thicker ice.


QUEST: Let's talk about the direction of economic policy in France. Did you make a U-turn? Was it --

LEVY: I don't (inaudible) it is a U-turn, because a U-turn is probably 360 degree, but I believe it's at least 180 degree.

QUEST: Yes, and he didn't -- he said it was just a development of the policy.

LEVY: Maybe, but maybe I have not clearly understood what happened, but I do know that has been a clear change in the policy, which is good. And it's good for the business, it is good for future employment. We have this very important problem in France which is about 'competitivity'.

QUEST: Right.

LEVY: Our social charges and the costs of welfare and the cost of state is such that these are having an impact in the 'competitivity' of our companies.

QUEST: What for you has been the high points of Davos? What did you think made this year's forum different and better?

LEVY: The mood -- which has been -- without being totally upbeat and -- it is reasonably and responsibly positive with some nuances. The fact also that the IBC -- International Business Council -- will spend -

QUEST: Right.

LEVY: -- something like five hours on youth unemployment. This never happened before.

QUEST: Yes, but now you've just got to do something about it.

LEVY: But we will. We will. We are ready to help as much as we can, but as you know, the golden rule is that the company has to be profitable, the company has to be -

QUEST: Right.

LEVY: -- competitive, and as long as we can be competitive, --

QUEST: Right. LEVY: It is our duty to help youth unemployment to be resolved.

QUEST: This time next year, we'll both be here to talk about -

LEVY: Absolutely.

QUEST: -- (inaudible). Good to see you.

LEVY: Thank you.

QUEST: Many thanks indeed. "Quest Means Business." We continue in the cold of Davos, after the break.


QUEST: It's been an ugly day on Wall Street. The Dow Jones Industrials fell more than 300 points -- take a look at the numbers, and, well maybe you shouldn't be, heading to the weekend -- give you a nasty bout of indigestion. The market off nearly 2 percent at the close. It basically opened down and never looked back. Laura Tyson was (Inaudible)'s top economic advisor. She's now business professor of Berkeley University, and Laura joins me now. I'm not going to worry, I'm not going to ask you why the market was down -


QUEST: Because it -- well, didn't go off.


QUEST: But we do know that what we're seeing is concerned now in emerging markets -- Argentina, a currency crisis, and it raises the issue - -


QUEST: Are the wheels coming off the wagon?

TYSON: I do not think the wheels are coming off the wagon at all. I do think -- we know and we heard messages about it this summer -- that as the U.S. economic outlook strengthens and as therefore people expect -- and I think they're expecting too soon -- a significant change in Fed policy, that is likely to trigger movements of capital out of emerging markets, particularly emerging markets that don't have their own fiscal conditions and current account conditions in good shape.

QUEST: I mean, that's really what seems to happen, isn't it? It's the old line when the tide goes out, you see who's swimming naked.

TYSON: Well, when we were -- when the U.S. economy -- when we were -- filling the world economy with liquidity, and interest rates were driven very low, and they've in an accommodative stance for more than five years, that encouraged capital to float into these economies.

QUEST: Right. What's your biggest concern, I' mean, you've been here at Davos -


QUEST: -- you've heard people talk about inequality. What for you has been the biggest concern?

TYSON: So, I believe the biggest concern is the issue of long-term downward pressure on wages. We talk about an unemployment crisis. In the U.S., we have labor force participation rates at historic lows, we are bringing down the unemployment rate, but the wages for the median worker have not recovered -

QUEST: You can -- you can't raise those wages easily, not and keep competitiveness.

TYSON: Well, what I am saying is I think this is a challenge for the developed countries of the world. You know, we had a very lively discussion here about if we're going to have digital technologies, basically eliminating -


TYSON: -- many kinds of jobs and driving wages down, we're going to have to come up with new social contracts. For example, in the United States, a significant increase in the minimum wage.

QUEST: A political point that we shall just have to leave there for the moment. Laura, good to see you as always.

TYSON: Nice to see you.

QUEST: Thank you for joining us -

TYSON: Nice to see you.

QUEST: -- in Davos. OK, Jenny Harrison was right in one respect -- we did get snow and we got snow overnight Thursday into Friday. Jenny, was -- Jenny, well look. It didn't do much.

JENNY HARRISON, WEATHER ANCHOR FOR CNN INTERNATIONAL: I know it didn't do -- I have to say, Richard, I've never seen the trees so green behind you, but you know what it is? It's all that hot air coming out your mouth, isn't it? It's just chemistry --

QUEST: Oh-ho!


HARRISON: I had to get one in before the week was over. And, yes, it's pretty cold right now. I'm going to come on to Davos in just a moment, but I have to tell you that there's a lot going on in Europe as you head to the weekend. We've got some bitterly cold air in place across eastern areas. This system in the southeast is bringing rain, heavy at times. Also some very heavy snow and all of this across the northwest -- I' m afraid you're seeing a bit of return to those very stormy conditions we saw just a few weeks ago. These are current temperatures -- -22 in Kiev, -1 in Vienna, -11 in Berlin. It feels even colder than that with the wind -- -31 in Kiev. Even just 5 degrees Celsius in Rome. So, you can see where the really, really cold air is. It will stay in place for the next few days, and a slight sort of reprieve as you get to about Monday. Warsaw up to -6. It does stay cold in Moscow -- -13 and the average is -6 and also Berlin you'll notice. Again, the temperatures there do come up. Now, this system with the rain and some very heavy amounts of snow. This is where the cold air is filtering down to, and it's that dividing line of course, all that moisture coming up from the Mediterranean and caught in an area of low pressure. And we have got some warnings in place. (Inaudible), again some strong winds, maybe even some waterspouts, and as I say, just generally some very heavy amounts of rain and then we look at the snow, because this is the first proper snow really of the season. We could be seeing as much as 57 millimeters in some areas of the mountains, 19 centimeters in Zagreb, 16 in Belgrade. And as for Davos here -- a few flurries out there right now, Richard. Not a lot as you said and it really hasn't stuck. It's -7 at the moment, the winds are fairly brisk from the north. And of course for the next few days, also have to do with how long people are staying, but Saturday's going to be sunny and dry -- a very nice day. And then Sunday and Monday there's actually more snow in the forecast. So, might hamper people's plans to leave Davos, depending on when that's going to take place. And then in the northwest of Europe, this next storm system coming through -- the warm front bringing in the snow ahead of this system, then it cools down behind. We're going to see a lot of rain though really with this system, and again, some snow at those high elevations. And also quite a bit of snow working its way across areas of Germany. But look at the winds once again as we head into Sunday, getting to over 100 kilometers an hour. So, as I say, unfortunately return to that stormy weather condition. And just be prepared on Saturday, Richard, certainly across much of Europe, some delays because of the snow, Berlin because of some fog and again those winds causing problems in Sofia, seeing quite a delay there because of the snow in the forecast. Richard.

QUEST: Jenny Harrison at the World Weather Center. And Jenny of course have a good weekend.

HARRISON: Thank you.

QUEST: Now, all week I have been -- never you mind. All week I have been perfecting the art as you can see of taking the selfie. Now the thing about the selfie is, it's not easy at Davos because half the people don't want you to take a picture and the other half, well you can't take it anyway. So what about the "Davos Selfie Challenge"?



QUEST: This is the "Selfie Challenge." Look, I need -- I need a selfie. Oh, I've got to get a selfie, haven't I?

Male: Indeed. Why not?

QUEST: Oh, yes, that was my (inaudible) . Selfies, (Andre).

Male: Yes.

QUEST: (Inaudible. First of all, we need to do the "Selfie Challenge." No, no -- got to get the selfie. Everybody do a selfie. Didn't know whether it was appropriate to ask, Your Eminence.


QUEST: Why not. There's nothing flattering about the selfie, is there?



QUEST: Tonight's "Profitable Moment." Sometimes at Davos you can be accused of taking yourself too seriously, and sometimes you need to remember what it's all about. If we had any doubt, (Jon Stewart) of "The Daily Show" in the United States reminded us exactly what we needed to know.


QUEST: Here at Davos, the view is that they need to deal with inequality. It's the number one issue that people are talking about in the salons, in the bars, in the restaurants.

JON STEWART, HOST OF "THE DAILY SHOW WITH JON STEWART (MIMICKING QUEST'S VOICE AND MANNERISMS): Yes, inequality. They're talking about it in the cigar lounges, in the champagne pavilions.



QUEST: Aw, sometimes you wish you just never said it. And that's "Quest Means Business" for this year in Davos. I'm Richard Quest in Switzerland. Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's profitable.